The S&P 500 index has experienced a significant decline, dropping 17% from its record high in February, and is now firmly in market correction territory. This downturn has been attributed to a shift in U.S. trade policy instigated by President Trump, particularly following the announcement of reciprocal tariffs on April 2.
A number of experts have voiced concerns regarding the Trump administration’s approach, suggesting that the reciprocal tariffs may have harmful effects on the U.S. economy. Historically, potential exists for the stock market to continue declining in the months ahead.
Many economists do not agree with President Trump’s focus on trade deficits and the calculations underpinning his reciprocal tariffs. Trump contends that unfair trade policies have disadvantaged the U.S. for decades, highlighting that U.S. imports have consistently exceeded exports since 1975. His aim is to balance these deficits through reciprocal tariffs. However, the Congressional Research Service notes that most economists do not share Trump’s perspective. Additionally, numerous experts have raised doubts about the methodology used to determine the tariffs. The Tax Foundation criticized the logic, stating the tariffs were based on trade deficits rather than the actual tariffs imposed by other countries. Dan Ives of Wedbush Securities labeled the calculations as incorrect and illogical, suggesting they may be studied for years as a substantial policy mistake.
Economists are also concerned about the possible repercussions of Trump’s tariffs on the U.S. economy and households. Previously, JPMorgan Chase had a positive forecast for the U.S. economy, predicting 2% GDP growth and a slowdown in inflation to 2.4% for 2025. However, following the announcement of the tariffs, JPMorgan revised its projections, now expecting a GDP contraction of 0.3% and increased inflation of 4.3% in 2025. Strategist Michael Feroli indicated that recession probabilities have increased. Morningstar economist Preston Caldwell also raised his recession forecast, noting that the tariff increases pose a potential economic threat. The Tax Foundation estimates that these tariffs will cost the average U.S. household $2,100 in 2025 and result in Americans paying $3.1 trillion over the next decade as companies transfer increased costs to consumers.
Historically, stock market experts suggest that further declines could occur, though they may present buying opportunities for investors. Despite recent market volatility, President Trump expressed confidence in the long-term strength of the U.S. economy. According to reports, an abrupt shift in trade policy could push the U.S. into recession, potentially leading the S&P 500 to fall even further. During previous recessions, the index has declined by an average of 31%. Nonetheless, given the S&P 500’s historical recovery pattern, patient investors may find viable prospects to purchase high-confidence stocks. It remains advisable, however, to exercise caution and gradually enter the market, given the uncertainties around the duration and extent of the current market downturn.
